The Deal: A Royalties Pain on the Air
Pandora admitted its expansion into terrestrial radio is designed to alter revenue sharing agreements with songwriters and publishers. It's part of an effort to bend or change standards Pandora believes harms its bottom line. That approach, in turn, has triggered multiple lawsuits and other legal maneuvering by publishers and their agents.
Litigation isn't only directed at Pandora, when it comes to digital streaming and music royalty disputes. On Monday, SoundExchange Inc., the organization charged with collecting and distributing digital royalties, filed suit in the U.S. District Court for the District of Columbia, against satellite radio service Sirius XM Radio Inc., alleging systematic underpayment of royalties.
But Pandora is attracting the most attention these days, and some of the most impassioned vitriol. Despite large jumps in revenue and more than 70 million listeners, there's both an in-your-face attitude and a whiff of desperation about Pandora's acquisition of a radio station. Pandora, which went public in June 2011, continues to lose money despite more and more advertising sales. Last week, the company reversed course on limiting listening hours for those mobile users who don't pay money to subscribe. That foreshadows a direct challenge to Pandora's current supremacy, when, next month, Apple Inc. is scheduled to launch its long-awaited iTunes Radio.
The transfer of the radio station license is pending with the Federal Communications Commission, according to a Pandora spokesperson.
Pandora's attempted move to terrestrial radio helps shed light as well on much larger issues related to the music industry, where rapidly changing technology and fickle consumer tastes clash with revenue sharing determined by legislative or administrative fiat. This kind of price determination shapes the value of an individual song and, by extension, music companies.
"In this supposed bastion of capitalism, there's price-fixing, as if this was World War II and we're rationing sugar and nylons," said David Lowery, an outspoken musician and lecturer in music business at the University of Georgia.